Exam 2: Securities Markets and Transactions

George has heard a rumor that a major pet food company will be forced to recall millions of cans of pet food due to contamination. If the rumors are true, the company's stock price will decline sharply. Which one of the following strategies would allow George to earn a profit if the rumor proves to be true?

IPOs are typically underpriced so that the price rises during the first few days of trading.

When a person sells a common stock short, she or he is betting that the price of the stock will fall.

Market makers in dealer markets

Short-term securities are bought and sold in the

A market maker brings together buyers and sellers in an auction market.

Which of the following statements about short selling is (are) true? I. Short selling requires an initial margin deposit. II. Short sellers begin a transaction with a sale and end it with a purchase. III. Short sellers profit when the stock prices rises. IV. Short selling can be a risky strategy.

Margin trading requires the borrowing of securities.

Gerry bought 100 shares of stock for $30.00 per share on 70% margin. Assume Gerry holds the stock for one year and that his interest costs will be $45 over the holding period. Gerry also received dividends amounting to $0.30 per share. Ignoring commissions, what is his percentage return on invested capital if he sells the stock for $34 a share?

Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial margin is 70%. The maintenance margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his account?

Federal laws that control the sale of securities are called blue sky laws.

At the market close on June 13, 2019 Apple Inc. (AAPL) common stock was trading at an ask price of $191.10 and a bid price of $190.35. Apple's previous closing price was $194.19. What is the bid/ask spread of Apple?

Which of the following are provisions of the Sarbanes-Oxley Act of 2002? I. an oversight board to monitor the accounting industry II. tougher penalties for executives who commit corporate fraud III. stricter prohibitions against insider trading IV. guidelines for analysts conflicts of interest

The dominant options exchange is the

The Consumer Financial Protection Agency was established by

Short selling requires the borrowing of securities.

A restricted account is defined as a margin account wherein the equity is

Which one of the following statements about margin trading is correct?

The primary market tends to be more active when

Underwriters are responsible for promoting and facilitating the sale of securities.